Perfect Compliance?

The question often comes up of whether we’ve ever seen a store with perfect warranty compliance. Of course, the answer is no, but some have come close.

We’ve always heard and quoted that human error accounts for 5% of compliance errors and our experience in audits tends to support that percentage.

When you consider the number of people who may have played a part in any given warranty claim, that’s a remarkable achievement, as anyone down the line could have forgotten a signature, approval, failed to attach a required piece of paper, clocked an improper time record, made a misdiagnosis, applied an incorrect labor operation, etc. The list goes on and on.

Experience has also shown us that “average” non-compliance tends to fall in the range of 12 – 16%. From time to time, we will encounter a 30+ percentage of non-compliance, but those cases are actually pretty rare. Nonetheless, 16% debits in a warranty audit can add up to a good piece of change that will never be recovered.

The nature of our business allows us access to most every manufacturer’s warranty policy and procedure requirements. By far, GM requires more management approvals than any other manufacturer. That fact alone makes perfect compliance a near impossibility.

Still though, there must be a way for a dealer to achieve 95%, or possibly even the elusive 100% level of compliance, right? Over the years, we’ve seen dealers go from a 30% non-compliance down to less than 10%.

In every case, the technicians were the same ones as from the 30% chargebacks. The primary changes were a strong service manager who made compliance a priority by holding all parties responsible and conducting monthly “spot check” reviews of paid claims, along with meetings to outline shortcomings.

In fact, one of the largest dealer groups in the country requires their service and parts managers to re-review 10 random warranty claims each month and file a report with the corporate office.

We have conducted reviews at several of these stores and find their non-compliance to be below the national average in most cases, so the exercise is worthwhile. Initially, many of the managers complained about the additional work, but over time it’s become just another part of the job.

Another beneficial change is making photographs of anything that might be questioned down the road. This includes items that were replaced because of “stress cracks,” “trim defects,” “paint flaws” and anything else that could be challenged. These can be stored electronically by VIN/RO (with a corresponding note on the repair order), but we prefer you have them printed and attached to the claim.

Last, but maybe more importantly, is a warranty administrator that understands the consequences of non-compliance and takes the responsibility seriously. This person views the position as more than a job—it is their field of expertise and a direct reflection of their ethics and professionalism.

As ironic and unfortunate as it may sound, it sometimes takes an audit before shortcomings are even detected. We urge our readers to be proactive. If you are in this business long enough, you will be audited. Don’t wait for the auditor to point out shortcomings. Take a subjective look at your processes and initiate a game plan to minimize exposure.